Summary
- IBM yields 4.5% as of this writing, a payout that is supported by sizable free cash flow generation.
- Rising debt levels in the face of the all-cash Red Hat deal poses a problem for Big Blue.
- Management plans to allocate free cash flow to debt reduction in 2020 and 2021.
- Declining gross margins and shrinking revenue streams are major problems that need to be reversed.
Image Source: International Business Machines Corporation – IR presentation
By Callum Turcan
Times have been tough for International Business Machines Corporation (IBM) and its shareholders as the company’s stock price has been on a major downward trajectory since early 2013. Simply put, IBM’s legacy businesses are in decline, and that has prevented the company from posting lasting revenue growth. From 2016 to 2018, IBM’s annual revenue declined by $0.3 billion at a time when its cloud-oriented peers were doing much better.
